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Launching A New Business

7th February 2018

I am regularly asked to give people advice ahead of them commencing with the launch of a new business. It is something that I, myself, have done successfully on a number of occasions, and as such I have learnt, along the way, many important things to consider. This blog summarises the main considerations, and should help as a useful reference point to those who seek my thoughts in the future.

The first things to think about very seriously are as follows. (i) Are you ready to give this new venture everything you’ve got?, and (ii) Do you have a good product or service that people will want to purchase at a level that makes the whole idea worth it? You need to be totally committed and prepared, at least initially, to be living, breathing, thinking and sleeping this idea. But before all that, will it actually give you, in terms of income, job satisfaction or whatever other measure that defines success, the results you are looking for?

What’s in a name? Well absolutely everything. You really need to work hard at coming up with a good business name (and the associated brand identity) that will stand the test of time. Your name and accompanying tag line needs to reflect the kind of business you see yourself being, not just today, but years down the line. Do you want to put your own name within the title of the business? This may, or may not, be a good idea. If we take the name ‘A Smith Ltd’, what is that actually saying to customers? Should the name not reflect what we do? I would always go with a big YES on that front. So, ‘A Smith Plumbers Ltd’ would be far stronger in my opinion. What about reflecting the marketplace in which you trade, either geographically or by sector? So, we could end up with ‘A Smith Household Plumbers Scotland Ltd’. OK now things are getting a bit bonkers and we have possibly gone too far. That is where the importance of a tag line comes in (something that should be included in all marketing material, from the signature on your emails through to the words on the side of the van). Now, we may end up with ‘Plumbers Scotland Ltd’ as the name, supported by the tag line, ‘Delivering Quality Service To Householders’. Other things to consider in your name choice are as follows. Is anyone else using the same name, and is there web domain names available for that name? For the former, you can check Companies House for Ltd company names in the UK, as well as resources such as National Business Register. And don’t forget the easiest of checks, using internet search engines. And here is the point. If anyone trading in your sector and/or your trading area geographically has a name similar to yours, you would be well advised to steer well clear and come up with something different. To not do this would be an open invitation to being forced to, later down the line, having to totally re-brand your business (sounds expensive and risky). And to finally close off this paragraph, the web domain name? For goodness sake do not go all the way down the line of getting the business name checked and registered, to then find you can’t have a web domain that reflects your business name. So check this out early on. 

Should I go for Limited (Ltd) Company Status, or should I be self-employed (or a partnership)? First of all, becoming Ltd isn’t that complicated. In fact it can be done in a matter of days, as opposed to setting up a business bank account which can take, relatively speaking, far longer. Being Ltd has certain requirements, but comes with it the protection from risking your personal assets. Also a Ltd company has its own separate legal identity to its owner(s). This means that when you work for your own Ltd company, you are actually an employee of the business you own as a shareholder. Being self-employed also has benefits and risks attached in that respect. Get good advice on these options, but in my opinion do not do one or the other purely based on a perceived cost, as in reality it’s not really a decision that needs to be driven by price.

Do I need an accountant? If you are Ltd company, then definitely yes. If you are a sole trader, you may be able to muddle through tax returns etc., yourself. But for the sake of a few hundred pounds per year (which can be written off as a business expense), if you can at least keep up-to-date with the books, is it worth your time doing all this yourself, and potentially making errors along the way? Now if you are not that busy (which may mean that every pound is a prisoner!), and you are up to date with your books, then it could be worth the effort saving on accountants fees. But, if you are busy, I would argue that you should focus on what you are there to do; deliver quality service for your customers. I have had direct experience of a small business not being able to deliver in a particular week because the boss was pulling together, at the last minute, the books and the tax return. What a shambles! I took my business elsewhere.

Do I need to be VAT registered? Well if your turnover is going to exceed the threshold set, then yes, you have no choice in this matter. On the other hand, there is nothing preventing you becoming VAT registered if you are below the threshold. There could be advantages to being VAT registered (e.g. allows you to reclaim the VAT on purchases), but, if many of your customers aren’t VAT registered (e.g. private individuals who can’t reclaim VAT themselves), then not being registered could give you a pricing edge over a competitor who is. So think about it in these terms, if you have the choice (i.e. below the threshold). Don’t, however, let anyone give you the impression that being VAT registered is complex or involves lots of extra work. The reality is, that this is not the case.

If I am a Ltd company, how much share capital do I need to invest? In short, as little as possible. Bear in mind that the shares you purchase in the business need to be paid for at the start. If you value the shares for 100% ownership at £10k, that’s what you need to put into the business bank account on day one. You aint getting that money back until you either wind up or sell the business (or some of your shares) in the future. If the business fails, again you are probably not getting your invested income back (or at least not all of it). The next question may therefore be, but the business needs £10k for start-up costs etc.? The answer to that would usually be along the lines of the following. Set the business up with minimal share capital (e.g. £100.00), and then give your business a personal directors loan of £9,900.00. You will be able to start taking this loan money back (not an option if it’s tied up as share capital) once the business can afford to pay it to you, either as a lump sum or over a number of smaller payments. I have seen some terrible errors on this front whereby people just haven’t realised the consequences of decisions such as this early enough in the process.

How much can I pay myself? Well in short, if it’s your own business (i.e. no other shareholders or partners), as much as the business can afford to pay you, but with always one eye firmly fixed on your cash flow projections. There are, however, a number of things to consider, even more so if the business is Ltd status. If you are a shareholder in a Ltd company you are also allowed to receive dividends (assuming profit has been made and the business can afford to pay), as well as taking a salary. It is wise to look at the best mix of these two methods of paying yourself from a tax and national insurance perspective. Tax rules etc. change every year. The best advice is to ask your accountant the most tax efficient combination of the two, for your personal circumstances. BUT you also need to allow for the fact that you will almost certainly want to ensure you are paying enough to cover national insurance contributions etc. which govern matters such as, are you contributing enough over the whole of any given tax year to ensure your state pension entitlement is being fully funded. If you are the only shareholder in the business then decisions in matters such as these are relatively easy, whereas with more than one shareholder you may need to allow for other persons circumstances, which leads me on nicely to the final point.

Should I own the business myself, or ask someone to be a co-owner? If there is no good reason to have a co-owner, other than ‘it would be nice’, then I would suggest, if at all possible, you go it alone. If you own it all outright, then you can make all of the decisions without anyone else getting in the way, or arguments occurring. Now that doesn’t mean, off course, that you can’t go to other people for advice or to bounce ideas around with. It just means once you have decided to do something, on a daily basis, you can move quickly and get on with it. On the other hand, when there has to be more than one owner (especially when it’s a 50/50 arrangement) you need to agree upfront, ahead of any potential disputes, how you are going to resolve differences in opinion. The time to agree all of this, is at the outset, not during your first heated debate! Many businesses can only succeed with the effort and true commitment of more than one person. If you are in this situation you need to prepare well, so that if there are disagreements the business doesn’t suffer and you remain together working effectively as a strong unit.

Health Warning: All of the above thoughts are of a generalised nature. Each business set-up has its own particular circumstances, and as such, in making any decisions relating to the above points you must seek specific professional guidance reflecting your own situation.

Business Expenditure – Needs & Wants

2nd October 2017

Cash flow forecasting is definitely one of my pet subjects when it comes to giving business management advice to clients. You need to be fully informed on a ‘day to day’ basis as to how much money you actually have in the bank account, along with how much is going to be in there tomorrow, a week from now, next month… ‘Cash Is King’. Without this knowledge how can you confidently make informed decisions as to what you can afford to spend in terms of the necessities (needs) that keep your business trading, and the desires (wants) that will help improve your business going forward.

I was explaining this to someone a few weeks ago. They were saying that they would really like to make a major purchase for their business, and also employing an additional member of staff would be helpful. So my first question was, “How does these expenditures impact upon your cash flow forecasting?” The reply was a silent, blank stare. You can imagine what followed, and during it all I began to describe making big financial decisions within a business as being a bit like a barometer. At one end of the scale, you have lots of money, and you therefore, potentially, have the ability to spend on desirables, whilst at the other end of the scale you have relatively little cash, and therefore little ability to spend on anything. When money is tight you have to be so strict that you are only spending on the absolute essentials required to keep your business breathing, until such time as the bank account begins to grow and your confidence in the financial stability of the business is such that you can proceed to spend on the “wouldn’t it be nice if we could…” 

Afterwards I started to think about my own reactions when asked by a staff member if we could afford a major purchase in one of my own business ventures. I would always (well, usually!) instinctively know what the answer was going to be. This would be as a result of me being totally up-to-date with our anticipated cash flow situation, allowing for acquired business and raised invoices. I then thought, that there must be a way of describing this thought process on paper. I am sharing what I came up with here (see table attached).

Sales Strategy – Specialise or Diversify?

6th March 2015

Some companies just do what they have always done and don’t really spend much time thinking about their product range, let alone the market sectors within which they operate. They just do what they do and are quite successful at it. I recall within the insurance sector, years before internet personal lines products were available, that there were certainly a good few insurance brokers who probably were successful in their local marketplace purely based on their brokerage being the only one in a particular town (i.e. no matter who set up in the town, business would have come their way, provided of course the business had the key foundations in place). In today’s faster moving world of the ‘instantaneous alternative’ available via the internet that is always winking at a dissatisfied customer, insurance brokers, like many other businesses, have to be far more strategically aware and customer responsive than ever before.

Other businesses were set up initially with a sales strategy focusing on a specific service or product to sell, and over the years they have evolved, often strategically planned, but sometimes more as a result of an accidental opportunity passing their doorway, into other products or services, or into different customer sectors. The point I am seeking to make is that every decision you make with regards to your product or service range should involve full and proper consideration, allowing for aspects such as: who are the customers that might buy the product?; where are these customers based?; how much are you going to charge?; do your people have the skills to sell the product or answer technical queries? – the list goes on and on…

It is therefore a dangerous strategy just to jump into something new without it being fully and properly thought out. So while you are considering this, now take time to consider what is your current product strategy? There are numerous ways in doing this, but a useful place to start is by asking yourself: Are we specialists in a marketplace within which some of our competitors are more diverse (e.g. they are offering a wider range of other services or products), or are we offering a more diverse product range and our competition is more focused on a smaller number of our offerings or a specific market sector, as against our ‘everything to all people’ approach? There is nothing wrong with either strategy, but having identified what you are in this respect allows you to then look at your own and your competitors respective strengths and weaknesses. As an example, you would expect a specialist to know considerably more about their product (e.g. a camera sales person in a camera shop), than a generalist selling the same product (e.g. a sales person in a large superstore selling a camera). In the former, the same product may very well be priced higher than in the latter, and rightfully so – most customers would happily pay a premium for the expertise, provided the expertise is truely there and adds value. I once went into a specialist running shop to buy a new pair of running shoes, only to be served by someone who didn’t know anything about running! – I wasn’t impressed, I didn’t buy – as I didn’t have confidence that they were guiding me in the right direction. Tied in with all of the conclusions you arrive at, you can then consider the current and required expertise within your own business, how to price your product or service, how to differentiate yourself within your marketplace etc. You can also explore whether you should consider a change in strategy and if so, what are the benefits and the risks associated with that, and what plans do you need to have in place in order to ensure a successful change in direction.

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